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Energy and commodity price benchmarking and market insights
Global coal demand and supply - implications for prices and miners Balikpapan
Abdul Hadhi, Editor, Coal & Petcoke, Asia Pacific 3 September 2013
Presentation summary
• US coal exports grow • Poorer Europe switching from South Africa • Indonesia and Australia grapple with higher costs • Chinese demand growth dependent on price, hydro • Indian buyers hit by weakening rupee • Should we be worried? • Amid volatility, indexation grows
Argus: quick facts
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Argus is a leading energy price reporting agency
• World’s largest independently held energy price reporting agency
• Price indexation, news, data and analysis for energy and commodity markets
• Founded 1970, more than 500 full time staff.
• 19 offices globally, including London, Houston, Washington, New York, Calgary, Rio de Janeiro, Singapore, Dubai, Beijing, Tokyo, Sydney, Moscow, Astana and other key centres of the energy industry.
• 8000 price assessments a day across 80 energy publications
Copyright © 2013 Argus Media Ltd. All rights reserved.
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• Coal: principal provider of price
indexation for physical and derivatives
markets in Europe, South Africa and Asia–
Pacific
• Natural gas: important UK and NWE index
in gas-to-gas pricing, used by Gazprom in
Russian gas exports to Europe, used by
French energy regulator CRE
Argus and generation fuels
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• Largest team of coal reporters of any publisher
• Coal correspondents in Australia, Singapore,
Beijing, Tokyo, Moscow, London, South Africa,
Washington DC and Colombia
• Publisher of: Coal Daily International, Argus/
McCloskey Coal Price Index Report, Argus/
Coalindo Indonesian Coal Report,
Argus Steel Feedstocks, Argus Russian Coal,
Coal Daily (US market), Coal Transportation
report (US market)
Argus and coal
Copyright © 2013 Argus Media Ltd. All rights reserved.
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• Cif ARA /API 2
• Fob Richards Bay/API 4
• Fob Newcastle 5500/API 5
• Fob Newcastle/API 6
• Cfr south China/API 8
• Fob Indonesia/ICI/HBA
• Fob Puerto Bolivar/API 10
Thermal coal indices
Copyright © 2013 Argus Media Ltd. All rights reserved.
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• Fob Australia/API C1
• Cfr north China
• North China domestic
• Cfr east coast India
• Fob Hampton Roads (mid vol/high vol)
• Fob Colombia
Coking coal indices
Copyright © 2013 Argus Media Ltd. All rights reserved.
Coal market – enough demand to match supply?
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717
311
4
788
284
5
861
276
5
0
100
200
300
400
500
600
700
800
900
1000
Steam Coking Lignite
Mn t
2009
2010
2011
Growth of global physical coal trade
Source: WCA
Copyright © 2013 Argus Media Ltd. All rights reserved.
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Indonesia, Australia lead top ten coal exporters
Source: WCA
Copyright © 2013 Argus Media Ltd. All rights reserved.
309
284
124
97
75 72
34
309
144
110
34
75 72
33
0
140
14
63
0 0 1 0
50
100
150
200
250
300
350
Indonesia Australia Russia USA Colombia S. Africa Kazakhstan
Mn t
Total
Steam
Coking
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Shale-induced rise in US exports was a game changer
Source: EIA
-‐10
0
10
20
30
40
Jan 07 Oct 07 Jul 08 Apr 09 Jan 10 Oct 10 Jul 11 Apr 12 Jan 13
Mn t
Exports Imports Net exports
Copyright © 2013 Argus Media Ltd. All rights reserved.
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US coal production steady to higher
-60
-40
-20
0
20
40
60
2011 2012 2013 2014 0
20
40
60
80
100
Mn t
Western region (right axis) Appalachian region (right axis) Interior region (right axis) Total production (left axis)
Year-‐on-‐year change (mn t)
Source: EIA
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• US domestic consumption off 2012 lows on reverse coal-to-gas
switching by US generators
• But mostly stockpiles being drawn down rather than new deals
• Coal exports expected to be 102mnt in 2013 compared to 114mnt
in 2012 – lower but still big volumes Previous annual record was
102mn t in 1981
• In Q1, Europe took up 53pc, Asia 28pc. Coking vs thermal split
60:40
US exports continue but consumption recovers
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US coal consumption increasing
Source: EIA
-120
-90
-60
-30
0
30
60
90
120
150
180
2011 2012 2013 2014 0
10
20
30
40
50
60
70
80
90
100
Mn t
Electric power (right axis) Retail and general industry (right axis) Coke plants (right axis) Total consumption (left axis) Consumption forecast (left axis)
Year-‐on-‐year change (mn t)
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US electric power coal stocks drawn down
Forecast
0
25
50
75
100
125
150
175
200
225
250
Jan 2005 Jan 2007 Jan 2009 Jan 2011 Jan 2013
Mn t
Note: Colored band around stock levels represents the range between the minimum and maximum from Jan. 2005 - Dec. 2012.
Source: EIA
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• Unlike US, Europe uses more “dirty” coal instead of “cleaner”
natural gas
• Coal is cheaper than natural gas in Europe
• More coal is used due to backlash against nuclear energy after
Fukushima
• But this is cheaper coal coming mostly from the US. Colombia is
also a source.
• South Africa unable to get the price it needs from Europe. Asia
overtakes Europe as main buyer of South African coal
Europe buys coal but cheaper product
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South Africa coal exports less stable
3.00
4.00
5.00
6.00
7.00
8.00
Jan 12 May 12 Sep 12 Jan 13 Jun 13
Mn t
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API 2 falls below API 4 often
60
80
100
120
140
Jan 10 Aug 10 Mar 11 Oct 11 May 12 Dec 12 Jul 13
$/t API2 API4
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South Africa coal now looks east
India, 22.6, 33%
China, 12.4, 18% Europe, 11.7, 17%
Others, 21.6, 32%
India
China
Europe
Others
Mn t
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• More tonnages headed to Asia from non-traditional sources
(South Africa, Russia, Colombia, US)
• Traditional Australian and Indonesian miners grapple with
higher costs. $70 for Australia, super profits tax , $55 for indo,
higher IUP royalties
• Weaker prices don’t help
• Australian producers resort to cutting jobs but not production
• Indonesia producers not looking to cut output either
Asia-Pacific miners face more challenges
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• Indonesia exported around 200mn t of coal in 1H 2013, or more
than two thirds of 2012 total exports
• With producers not cutting output, exports could be around
400mn t in 2013 barring any shocks
• Indians may overtake China as biggest buyer but will remain
price sensitive due to weak rupee
• Factors to watch include Presidential elections next year, higher
DMO
Indonesian exports to increase
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190
175
129
105
66
41 33
146
121
97
86
62
32 27
38
54
32
19
4 9 6
0
20
40
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100
120
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China Japan S. Korea India CN Taipei Germany UK
Mn t
Total
Steam
Coking
Asia dominates top coal importers list
Source: WCA
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Top three coal producers include China, India
Source: WCA, mn t
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Averages/month Full year
TRADE SUMMARY 2012 2011 YoY % ± 2012 2011
China thermal net coal imports (mn t/m) 15.1 10.7 41% 180.8 128.4
Imports of Australian bituminous (5,500 kcal/kg) 3.24 1.4 131% 38.9 16.38
Imports of Australian sub-bituminous (4500 kcal/kg) 0.38 0.28 36% 4.59 2.24
Imports of Indonesian lignite (3500 kcal/kg) 4.22 2.78 52% 50.6 33.32
Imports of Indonesian sub-bit (4500kcal/kg) 2.62 3.42 23% 31.46 40.99
Chinese demand is still growing (mn/t)
Source: China customs data
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• Chinese thermal coal imports increase
• Net imports in first 6 months was 100mn t – 11pc increase
• But power plants also using more hydropower
• Fear of coal prices in deflationary spiral – buyers deferring or
defaulting expecting price weakness – repeat of 3Q 2012?
• Proposed import ban on low cv coal creates uncertainty
While Chinese imports increase, prices don’t
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API 8 vs China domestic
60
80
100
120
140
May 12 Aug 12 Dec 12 Apr 13 Jul 13
$/t API 8 China domesYc China domesYc (less 17%)
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• Indian domestic output increases
• But fails to keep pace with demand
• Demand from power, cement, paper and other textiles
• Bulk of imports from Indonesia
• Weak rupee makes India price conscious
India buys more but weak rupee a concern
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Key Asian prices – stable to weak
20
40
60
80
100
120
May 12 Aug 12 Dec 12 Apr 13 Jul 13
$/t API5 API8 ICI2 ICI4
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• Talk of Chinese defaults again
• Coal stockpiles at Indian power plants higher than last year
• Miners suffering from high costs
• Growing output puts pressure on prices
• Australian producers report losses
• More favour indexation against fixed price
Should we be worried?
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• Buyers in China and India look for low prices and value, and focus
less on quality
◦ Less focused on relationships and security of supply
◦ Will swing to where ever coal is cheapest
• This forces producers to be more responsive to the market
• This means the Asian market will be more exposed to shifting prices
• Use of indices and market-based mechanisms will grow
Indexation reduces price risk
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• Reflects cfr South China 5500 kcal
• Launched May 2012, publishing weekly price with IHS McCloskey
• Comprising market survey of 15-20 key participants
• Deals done by international producers/traders
• Methodology is same as other API indices
◦ 50% volume weighted average of confirmed deals
◦ 50% average of bids and offers divided by market position
• Derivatives deals around 5 mn t mark
• CME, ICE and SGX offer clearing
API 8 represents south China import market
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• Reflects fob Australia for high ash 5500 kcal
• Launched May 2012, publishing weekly price with IHS McCloskey
• First API 5-linked physical deal in Dec 2012
• OTC derivative deal done Jan 2013
• Cleared by CME from June and cleared trades done
• Key buyers are Chinese but also relevant to Korea and Taiwan, which
are already using API 8 as reference
API 5 – index for Australian off-spec coal
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Development of the derivatives market
Source: Marex Spectron
‘000 t
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• China and India continue to import more
• US slowly restarting to consume coal
• Japan using more coal after Fukushima
• Europe using more coal as its cheaper than natural gas
• But this is not yet enough
• Supply still exceeds demand
• More cutbacks needed
• Amid more uncertainty, market turns to indexes
Famous last words …
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Thank you Abdul Hadhi Editor, Coal and Petcoke, Asia-Pacific, Argus Media Email: abdul.hadhi@argusmedia.com Phone: +65 6496 9966 URL: www.argusmedia.com
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